Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a severe blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. The blizzard was declared a federal disaster. The chalet's value was reduced to $135,000. Jarrett does not have insurance. Jarrett's AGI is $200,000. Jarrett's deductible loss after limitations is

Question

Quizplus · Accepted Answer

The deductible loss is calculated as the lesser of the decrease in value ($300,000 - $135,000 = $165,000) or the adjusted basis ($175,000). The loss is reduced by $100 and then by 10% of AGI ($20,000). So, $175,000 - $100 - $20,000 = $154,900. However, since the blizzard was a federally declared disaster, the $100 reduction does not apply, making the deductible loss $144,900.

Jarrett Owns a Mountain Chalet That He Purchased in 2008